MBP 320

SECTION 320: Lease, Lease Purchase and Installment Purchase Agreements 
Last Updated: April 2012

Purchasing Department 
Angell Building
166 Service Road, Room 102  
East Lansing, MI 48824  
Phone: (517) 355-0357 | Fax: (517) 353-2024

I.   Execution of Agreements  
II.  Evaluation Criteria  
III. Accounting 
IV. Amending Existing Agreements

 
I. Execution of Agreements

By directive of the Michigan State University Board of Trustees, only the President, the Secretary to the Board, the Vice President for Finance and Operations and Treasurer, the Assistant Vice President for Finance and the Purchasing Department have the authority to bind the university’s financial resources through the execution of lease, lease-purchase or installment purchase agreements. Individual university departments have not been granted that authority.

University departments considering a lease, lease-purchase or installment purchase agreement must submit a requisition and a proposed agreement to the Purchasing Department for review and approval; municipal leases must be submitted to the Controller’s Office for review and approval.

The Purchasing Department is responsible to determine the appropriateness of leases, lease-purchases and /or installment purchase agreements. Purchasing obtains legal review of lease documents through the General Counsel’s office. Purchasing negotiates any suggested changes to the terms and conditions of the lease documents with the lessor and subsequently receives final approval from the General Counsel’s office. The Purchasing Department may also conduct its own lease/buy analysis or it may suggest a lease-purchase through University Services to avoid East Lansing personal property tax and/or an unfavorable lease rate.


II. Evaluation Criteria

Leases, lease-purchases and installment purchase agreements meeting the following criteria will be considered an equipment purchase, and the purchase order will be coded with a 6496 expenditure classification. When the final payment is made and title passes to the university, the object code will be changed to 6492 for regular equipment and 6497 for federally funded equipment, providing the residual value is greater than $5,000.

General criteria to determine when a proposed agreement will be considered an equipment purchase:

    • The lease period is equal to or greater than 75% of the leased equipment estimated economic life. In cases where the lease contains a purchase option, a shorter lease period may be considered as criteria.
    • Title is transferred to the university.
    • The terms of the agreement indicate that it is likely to terminate with title transfer to the university.


III. Accounting

Year-end balances will not be carried forward to cover object code 6496 encumbrances.

Equipment purchases are coded with object code 6492 for regular equipment and 6497 for federally funded equipment. Encumbrances coded 6492 or 6497 will be carried forward to the extent of funds available.

Payments under agreements which are exclusively rental in nature (no option to purchase available) are coded with object code 6561 rental.


IV. Amending Existing Agreements 

If a department opts to either amend a rental/lease agreement to incorporate a purchase option, or to consummate a rental/lease agreement with a purchase, a requisition must be submitted to Purchasing authorizing the proposed change.